The case against Tesla, and why success may be harder than ever

The car business is my life. I buy cars, sell cars, finance cars and write about the whole process. That guy in high school who used to sit in the back of class and read car magazines all day? I was that guy, and I still am.

But I'm not blind to the industry's problems. As a former financial analyst, I knew General Motors was heading for trouble in 2007 and 2008, even when the company was pronouncing itself healthy. To supplement my income, I shorted 1,000 shares of GM stock — a good investment, as it turned out.

About a month ago, I decided there was a similar opportunity to short shares of Tesla Motors. I've supported some of their more virtuous pursuits, and the Tesla Model S is a superb product. But I think Tesla will be unprofitable for years to come, and has morphed into a glamor firm — one where people gleefully invest in the promise of a company's mission and personality of its CEO rather than its actual financial performance.

Here's why I bet against Tesla — an investment I sold (for a profit) after its quarterly losses were announced Wednesday, and before this article was published.

Tesla is investing in low-margin businesses.

Forget about pie-in-the-sky returns if you want to invest in Tesla or any automaker. Car companies typically make only about a 3% to 4% return when the economy is healthy. When the economy is in recession, they collectively lose billions due to fixed costs that are mostly unavoidable. Battery companies also operate in a low-margin business — making Tesla's huge investment in the Gigafactory seem even more risky.

Tesla has more than electric cars to compete against

One of the reasons why Tesla has done poorly in Europe and China is because both markets are loaded with millions of diesel vehicles that can provide outstanding performance and fuel economy without a stiff price premium. In China, the largest automotive market in the world, Tesla has stumbled with only 120 vehicles sold last month.

Tesla will likely have higher fixed costs